Date: 20020930
Docket: A-734-01
Neutral citation: 2002 FCA 353
LINDEN J.A.
LÉTOURNEAU J.A.
BETWEEN:
318806 B.C. LTD.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia, on September 30, 2002.
Judgment delivered from the Bench at Vancouver, British Columbia, on September 30, 2002.
REASONS FOR JUDGMENT OF THE COURT BY: LÉTOURNEAU J.A.
Date: 20020930
Docket: A-734-01
Neutral citation: 2002 FCA 353
CORAM: DÉCARY J.A.
LINDEN J.A.
LÉTOURNEAU J.A.
BETWEEN:
318806 B.C. LTD.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(delivered from the Bench at Vancouver, British Columbia, September 30, 2002)
LÉTOURNEAU J.A.
[1] Notwithstanding the able arguments of Mr. Bennet, we have not been convinced that Judge Rip of the Tax Court of Canada erred in his conclusion that the appellant's property, upon reacquisition in 1995 from a previous sale in 1990, was not an inventory, and that the appellant's actions to sell the reacquired property were not an adventure in the nature of trade. The appellant, for taxes purposes, had reported in 1990 the sale of its property, in this case a gas station, as a capital sale.
[2] As a result of contamination found when the buyer tried to resell the gas station, the asset substantially decreased in value. The buyer, who had made regular payments on the sale price over a period of five years, failed to make the final payment. Due to the contamination the appellant, as the vendor, was facing possible fines, contractual liability and liability to third parties. Mr. Smith who was the sole director and officer of the appellant was even facing personal liability.
[3] Counsel for the appellant submitted that the learned Tax Court Judge applied a wrong test in determining the nature of the asset upon reacquisition. He contended that the judge "implicitly assumed that a property seized in respect of a debt held as a capital property necessarily has the character of a capital property". In his view, the judge also erred when he used as the test to determine the nature of the property the fact that the appellant, in reacquiring the property, intended to protect its investment.
[4] With respect, we do not agree that this is what the learned judge did. He looked at all the circumstances surrounding the initial sale of the property, its subsequent reacquisition and the attempted resale to a third party to determine the proper characterization of the asset and whether the appellant met the legal test used in defining an adventure in the nature of trade. His review of the circumstances included, of course, the fact that the appellant was in fact motivated by the desire to protect its investment in the property. But that was only one of the factors he took into account. He also considered the improvements made to the property by the appellant. He concluded that they were undertaken to mitigate its losses, as opposed to making a profit on resale, as well as to mitigate his liability against possible lawsuits. He looked at the conditions of the attempted resale which involved a lease of the property for 5 years at the nominal rent of $1 a month with an unbinding purchase option after 2 years. In addition, there was no evidence that the subsequent sale of the property by the appellant after reacquisition could generate a profit. At the very best, the appellant could expect to break even.
[5] On the basis of all these facts, he came, in our view, to the right conclusion, namely that the appellant did not have the characteristics of a trader, its intention was to complete the sale of the property and, as previously mentioned, its actions were not part of a venture in the nature of trade and the property was not inventory.
[6] For these reasons, the appeal will be dismissed with costs.
(Sgd.) "Gilles Létourneau"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-734-01
STYLE OF CAUSE: 318806 B.C. Ltd. v. Her Majesty The Queen
PLACE OF HEARING: Vancouver, B.C.
DATE OF HEARING: September 30, 2002
CORAM: DÉCARY J.A.
LINDEN J.A.
LÉTOURNEAU J.A.
REASONS FOR JUDGMENT
OF THE COURT BY: LÉTOURNEAU J.A.
DATED: September 30, 2002
APPEARANCES:
Mr. Richard J. Bennett FOR THE APPELLANT
Ms. Patricia A. Babcock FOR THE RESPONDENT
SOLICITORS OF RECORD:
Lang Michener FOR THE APPELLANT
Vancouver
Mr. Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada